patrick.net

I presume you mean you gave a friend money to buy and flip a house, with the idea that this friend will pay you back with an interest rate above market?

HeadSet says

I presume you mean you gave a friend money to buy and flip a house, with the idea that this friend will pay you back with an interest rate above market?

Yes except money has not been exchanged yet.

Well, the obvious "protection" would be the same thing a bank does - you get a lien on the property. Even a contractor can get an "artisan's lien" for work done on credit.

I presume you friend does not want to use a commercial lender because he does not qualify, or he wants to avoid origination fees or primary residence requirements. I presume also that an FHA 203k rehab loan is not suitable.

If you are thinking of giving him an unsecured loan - I say don't. From my experience (and of many others), money loaned out tends to turn into a gift. I obviously know nothing of your relationship with this guy, but "money loaned to a friend must often be collected from an enemy."

A return isn't a return until realized. It will take you more money to try to get the money back legally than you are likely lending, and your supplicant likely knows that. I doubt that you have the resources of a bank or lending institution to recover, and if his credit and submitted specs are not sufficient for a conventional loan, then why would you take the risk?

HeadSet says

"money loaned to a friend (or relative) must often be collected from an enemy."

There, fixed it. If you want to get rid of a pesky relative, then lend them money with a handwritten note and interest and say you will pursue them to the ends of the earth for the payback. You will likely never see or hear from them again and if the amount is right it could be worth it. You basically paid them to go away.

The best way to get rid of a friend is to loan him money.
The borrower is slave to the lender, with all the tender feelings that implies.

HeadSet says

you get a lien on the property

I think this is the answer, no? He is a proven successful flipper.

1. lien the property
2. promissory note
3. title to his car
4. forget the whole thing

I'm a sucker and have lent people money and generally I get screwed and regret doing it.
Fuck brokeass lazy people; have no money? tough shit for you, figure out how to get it.

Do you mean like this?

https://www.marshallreddick.com/mortgages?page=1&limit=15&sort=-published&status=Available&view=all

I wouldn't lend to a friend, too messy. If you want to lend to a schmuck and get a 1st TD in some shithole for big gains, be my guest. I've never had the balls. There's a lot of exchanges like this where you can lend and the company has a footprint/agents/contractors in that specific area to get it sold quick should you get stiffed.

Dholliday126 says

https://www.marshallreddick.com/mortgages?page=1&limit=15&sort=-published&status=Available&view=all

So, if you try to lend out 100k ten times @ 10 percent return, and you lose one out of ten loans, then you are back to square one plus lost time and aggravation.

Dholliday126 says

I wouldn't lend to a friend, too messy.

I would, in a heartbeat. I would loan a friend as much as I could afford to give him.

I would then let him pay me back when and if he could.

If a real friend was in need I would not deny him. Nor would I give him more than I was prepared to lose. If he asked for another loan I would say "sorry, you still owe me and I can't afford to give you any more".

There are three kinds of people that borrow money from you.
1. Say they will pay you on payday and come find you on payday to pay you.
2. Say they will pay you on payday and something happens and they really did intend to pay you but something happened. They will not avoid you but will always have an excuse. If they come into a windfall they will pay you back, but you may have to ask for it.
3. They borrow with no intent of ever paying you back. If you're lucky they avoid you.

I had an old friend from high school who I knew had questionable scruples. I liked him anyway. About 30 years ago I loaned him $500 bucks and never saw him again. I eventually ran into him on social media and messaged him to get together and talk about old times. He blocked me. Probably for the best.

clambo says

1. lien the property
2. promissory note
3. title to his car
4. forget the whole thing

I'm a sucker and have lent people money and generally I get screwed and regret doing it.
Fuck brokeass lazy people; have no money? tough shit for you, figure out how to get it.

Good lord, why are banks top dogs all over the world then?

"If you lend someone $20 and never see them again, consider it a bargain."

Just buy the property yourself. If he's got the contracting experience to flip it, then let him it do that way and agree on split that's equivalent to the interest on the money you wanted. At the end of the day if you see it going south, boot him and get someone else in to finish the job. You're better off doing a partnership than just loaning people money, even good friends/family with little to no consequences. You at least have an asset if the guy fucks up. Loaning money, you could lose it all.

And yes, I know that's what a lien is for, but that just complicates it. Requires legal fees and dead money on the back end if he fucks you over. Just own the property and give releases of $$$ and visit the project to make sure it's on target.

WineHorror1 says

Good lord, why are banks top dogs all over the world then?

Do not labor under the illusion that banks primarily get money from savers in order to lend out to borrowers and profit from the spread. That is what banks sneering refer to as "retail money." In essence, the banks get money from the government to loan to the public. And when they goof up, politically connected banks get bailouts.

Now there is a lucrative market in credit cards that banks and even Credit Unions partake in. Making double digit interest rates from undisciplined borrows is quite lucrative, along with the percentage of the sale paid by the merchant.

I've loaned to a few businesses over the years. Most I lent was 50k. Took signed car titles as collateral. Expensive collector cars. Made 18% in 6 months.

Wookie,

How could a lien go bad? Never done one. If I understand correctly, at closing you're first in line to get paid. He's a proven success at flipping.

WineHorror1 says

He's a proven success at flipping.

Then why is he coming to you for money?

Onvacation says

WineHorror1 says

He's a proven success at flipping.

Then why is he coming to you for money?

Why does anyone borrow $$?

WineHorror1 says

Why does anyone borrow $$?

Leverage. If the bank won't do it...

Onvacation says

WineHorror1 says

Why does anyone borrow $$?

Leverage. If the bank won't do it...

That was a sarcastic question. The whole world operates on leverage and debt. Borrowing isn't a scam.

“Why are banks top dogs?” was asked above.
They profit from lending a depositor’s money at higher interest rates than they pay the depositor.
Banks need to lend money, or they make zero profits.
They fill several needs; 1. Depositor wants a safe place for cash 2. Borrowers want cash
This is inherently not hugely profitable unless the banks engage in high risk unsecured loans=credit cards.
Even still, they must be careful not to have too many defaults on the unsecured debt.

I’m not a bank; if I were going to lend my blood sweat and tears (cash) to someone, I would require a method of securing it with collateral (first born child, boat and car titles, etc.) and/or a huge rate of interest/profit.

Lazy or irresponsible people often have great ideas and vivid imaginations.
For me, it’s “fuck or walk” Glengarry Glen Ross.

clambo says

“Why are banks top dogs?” was asked above.
They profit from lending a depositor’s money at higher interest rates than they pay the depositor.
Banks need to lend money, or they make zero profits.
They fill several needs; 1. Depositor wants a safe place for cash 2. Borrowers want cash
This is inherently not hugely profitable unless the banks engage in high risk unsecured loans=credit cards.
Even still, they must be careful not to have too many defaults on the unsecured debt.

I’m not a bank; if I were going to lend my blood sweat and tears (cash) to someone, I would require a method of securing it with collateral (first born child, boat and car titles, etc.) and/or a huge rate of interest/profit.

Lazy or irresponsible people often have great ideas and vivid imaginations.
For me, it’s “fuck or walk” Glengarry Glen Ross.

That's why I started this post.

1) this guy is a proven success at flipping
2) what is best method of protecting my investment
3) I don't have the ability to purchase the property myself
4) I am not a flipper
5) if I were to buy it and have him do the work and then have to fire him for whatever reason (this was suggested by another commenter above) it is not so easy to replace his expertise.

Flippers are good at what they do, it's serious business here in Northern Virginia. The 2 most important aspects of being a success is 1) $$, 2) having a labor crew that follows you from flip to flip, 3) finding properties and 4) managerial expertise.

You don't invest in ideas, you invest in people.

WineHorror1 says

I don't have the ability to purchase the property myself

"Lending" money to friends and family means it must be an amount we are prepared to never get back. Therefore, I may give money, maybe I have. But I won't "lend".

If you can afford to "lend" him money but cannot afford to buy the property yourself, and you are so sure of his success, why not instead of lending, do an equity partnership?

Any Muslims here can correct me if I am wrong, but my understanding is this is how Islamic Banking works: they don't lend for interest, they invest for equity.

WineHorror1 says

Wookie,

How could a lien go bad? Never done one. If I understand correctly, at closing you're first in line to get paid. He's a proven success at flipping.

It's the cost of collecting if it goes south. Not a judgement of who you're talking about. It could be a great opportunity. Regardless of past successes in flipping, I'd want control of the asset without having to deal with liens, attorneys and court cases. If you're able to loan larger sums, why not just buy the property is my take. If the guy is that good at flipping and it's a deal, he should have no problem saying X percentage is yours once my work is done.

Either way, an individual asking another individual for money is risky. Banks give lower interest rates. Why ask a friend? It's strange. Do they have skin in the game besides a friendship? Humans are fucked up creatures. They will burn you at the word go regardless of the past. Owning the asset is the easiest/safest route and then if I don't own it, for sure lien the property. Just do a title search and make sure you're not accidentally a 2nd lien. Hence why I say it's easier to just buy it personally.

B.A.C.A.H. says

WineHorror1 says

I don't have the ability to purchase the property myself

"Lending" money to friends and family means it must be an amount we are prepared to never get back. Therefore, I may give money, maybe I have. But I won't "lend".

If you can afford to "lend" him money but cannot afford to buy the property yourself, and you are so sure of his success, why not instead of lending, do an equity partnership?

Any Muslims here can correct me if I am wrong, but my understanding is this is how Islamic Banking works: they don't lend for interest, they invest for equity.

I fail to see the difference.

WineHorror1 says

I fail to see the difference.

Equity partnership: you and your "partner" own the property, in amounts/portions that are clearly spelled out in the contract. The contract clearly spells out, if his flip is successful, who gets what in the capital gain.

People do this all the time. Some flippin' inlaws of mine tried to rope me into their partnerships.

Somebody else's brains and my money. Where have I heard that before?

WineHorror1 says

I fail to see the difference.

Semantics are really important to Semitics.

Almost in every case I failed to collect it back and end up made enemies and left with humiliation. Very bad way to learn how money works. Never ever give money to friends or relatives no matter what the "opportunity" is. Throw it at index fund, you will never regret it.

Drive your car until the paint is peeling off. Nobody will ask you for money.

Blue says

Never ever give money to friends or relatives

That's a little harsh. As others have pointed out here, OK to "give" as there's no expectation of being repaid. It's a gift.

But "lend"?, - forget it. Why can't they get conventional financing from conventional sources?

Flippers use hard money to buy and finance repairs to their properties. If someone tells you they are a great flipper but then asks for money it means they're not a good flipper. Not only that but they have probably exhausted their hard money options which means they have been a shit flipper.

Well, thanks for giving me all this advice...

"DON'T LEND, WHAT ARE YOU, CRAZY OR SOMETHING!!!?"

People take risks. Housing and stocks never go down or something?

The bitcoin cheerleaders here never lost on bitcoin? Lol.

I just want to know whether or not there is a best way to protect myself. I have never done a lien but, if I understand correctly, a lien is first in line to be paid at closing. Is this true? I know this guy.

I know he is successful as I have seen him do several flips. It's what he does...full time. Northern Virginia is rife with flipping. The most successful ones do back to back flips and even do 2 or 3 at the same time. They are able to do this because they have a crew (NOT employees) that follow them from flip to flip. This is imperative to successful flipping. Without a crew you ain't got shit. If a crew does not get enough work, they find another flipper or find their own work and then the flipper is fucked.

WineHorror1 says

I know he is successful as I have seen him do several flips. It's what he does

Great!

Partner with him. But don't lend.

Guys,

Maybe we should be open minded that Winehorror is the flipper, and he's fishing for talking points to pitch to his soon-to-be-exfriend, on how his friend can lend to him and also protect himself.

Wonderful world of blog.

B.A.C.A.H. says

Great!

Partner with him. But don't lend.

Ok, what would that look like? Create an LLC for each flip? Purchase the house together so Winehorror1 is on the deed? It sounds like he/she just wants to put money in and that's it.

GlocknLoad says

Ok, what would that look like? Create an LLC for each flip? Purchase the house together so I am on the deed?

(Assuming that you are not the flipper "asking for a friend", as they say):

What would it look like? He should tell you. He's the one who wants access to your money. He should do the work to figure that stuff out.

Flipper is making stone soup to get you in. You are one flip away to become his enemy if it goes south.

Ok, so there is NO way to protect myself?

Btw, I believe it is my responsibility to ensure I get my $$ back, not him.

WineHorror1 says

I believe it is my responsibility to ensure I get my $$ back, not him.

That's hilarious.

I get it, you're posting here for comic relief entertainment.

Thank you.